Insurers' Hedge Fund Investments Declined in Value in 2022

The value of insurers' hedge fund investments dropped 9.9 percent last year to $11.8 billion, reversing 2 years of growth for insurers in the investment class, according to a new report from A.M. Best.

In the Best's Special Report, "Book Value of Insurers' Hedge Fund Investments Declines," the rating agency said that property-casualty insurers saw a 10.7 percent decline in the aggregate book-adjusted/carrying value of their hedge fund investments in 2022. Life/annuity insurers saw an 8.2 percent drop in the book value of their hedge fund investments, Best said.

Property-casualty insurers' dollar exposure to hedge fund investments fell to $6.0 billion, Best said, while life/annuity insurers' dollar exposure fell to $5.6 billion.

The rating agency noted that after 2 consecutive years of double-digit gains, hedge fund performance turned negative in 2022 amid volatility and rising interest rates. Larger hedge funds—those with more than $3 billion in assets—were among the worst performers, Best said. Still, Best noted, the hedge fund asset class did protect investors from significant losses in the equity and fixed-income markets.

"Overall, hedge fund investments make up an extremely small portion of invested assets for insurers—less than 1 percent for each segment," said Helen Andersen, industry analyst at A.M. Best. "Given that hedge funds are largely independent of stock market trends and less correlated with the broader markets, this has enabled insurers to mitigate the adverse impact of COVID-19, including smaller drawdowns and less volatility."

Best said that while the insurance industry's hedge fund exposure shrank in 2022, the number of insurance industry hedge fund investments grew to 1,222 in 2022 from 861 in 2021.